European chemical industry turns to U.S. shale gas – Houston Chronicle

As the U.S. chemical sector expands, fueled by a surge in domestic natural gas production, the European chemical industry is stagnating, plagued by high production costs and a lack of investment in new plants and in research and development.

To stay competitive, Europe must do business differently, including importing feedstock made from U.S. natural gas, an American chemical consultant told industry officials at the European Petrochemical Association annual meeting in Vienna.

The comments last week by Michael Smith, vice president of the information firm IHS Chemical, were the latest in a chorus about the future of Europe’s chemical industry.

It has been facing growing pressure to revise its business model after cheap natural gas touched off a building spree in the U.S. petrochemical industry, creating new competition for lucrative markets in Asia and the Middle East.

Smith said in an interview that Europe isn’t likely to embrace theshale boom that has transformed the energy landscape in the United States because of political resistance to hydraulic fracturing, the well completion technology central to shale work.

So chemical companies there should view imported U.S. ethane as an attractive alternative feedstock.

Ethane, a component of natural gas, is used to make the plastics building block ethylene.

Pricier than ethane

European ethylene producers, particularly in Western Europe, now make their product mostly from naphtha, which is typically derived from crude oil and is much more expensive than ethane.

Some European companies already are retrofitting to run on imports from the United States, creating what IHS dubbed a “virtual ethane pipeline” between North America and Europe.

Supply from U.S.

Ineos, a Switzerland-based multinational chemical company, has signed contracts to supply its crackers in the United Kingdom and Norway with U.S. ethane, according to IHS.

Those two crackers, which separate ethane into component substances including ethylene, now use natural gas from the North Sea.

Ineos is building terminals to accommodate tankers of cheaper gas pumped from the Marcellus Shale in the northeastern United States, Smith said, and Italian petrochemical maker Versalis said at the Vienna gathering that it will convert a cracker in northern France to consume U.S. ethane.

“We’ve identified seven other possible locations in Europe where they could import ethane and crack it, but with higher conversion costs,” Smith said.

Substitute for propane

U.S. ethane production continues to be strong.

The U.S. Energy Information Administration said last week that a growing supply is expected to keep ethane cheaper than propane, continuing a trend that started in 2013, when U.S. ethylene crackers began substituting ethane for propane as the price spread between the two widened.

“There’s so much gas being extracted that even in 20 years time there will still be gas to be exported,” Smith said. “There’s no limitation on the supply side.”

via European chemical industry turns to U.S. shale gas – Houston Chronicle.